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Corporate,
Banking

Nov. 20, 2019

The $200 trillion question: What’s happening to LIBOR?

The financial world has begun to prepare for life without LIBOR, as it is anticipated that the index will cease to be widely reported after 2021. The seeds of LIBOR’s downfall have been sowed for a number of years and much of the banking world has been involved in a quest to anoint a new reference rate.

Simran S. Bindra

Counsel
Thompson Coburn LLP

Email: sbindra@thompsoncoburn.com

Simran is a member of the firm's Banking and Commercial Finance practice. He has previously served as general counsel and senior director for the commercial and specialty finance group at Capital One, N.A. as well as serving as senior counsel with a publicly traded real estate investment trust.

The $200 trillion question: What’s happening to LIBOR?
It is unsurprising that many floating-rate loans being originated today continue to utilize LIBOR as the reference rate rather than utilizing an alternative. Although some -- including New York Fed President John Williams -- have characterized this situation as institutions "sticking their metaphorical heads in the sand, hoping the issue will go away," it's equally likely that the hesitation to establish a new benchmark is a logical reaction in a world where no legitimate benchmark has established itself. (New York Times News Service)

Since the 1980s, the most common benchmark for charging interest rates on loans with a floating rate has been the LIBOR. An index originally developed by the British Bankers’ Association, LIBOR stands for the “London Interbank Offered Rate” and is determined based upon the interest rate that banks charge one another for borrowing funds on an unsecured basis. Individual banks report these rates, which are then compiled and reported for various reporting periods (overni...

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